LONDON Feb 27 A tumultuous start to 2014 for
global emerging markets has put volatility back on the map for
many currencies, but those in the developed world remain quiet
as the grave.
With bets on a stronger run for the dollar this year still
failing to materialise, the past week has seen the euro and U.S.
currency trade in the tightest range since before Bear Sterns
began to collapse in 2007.
That is bad news for the banks and currency platforms for
whom the volumes of trade generated by major market volatility
are a precondition for profit. But some argue it may also be the
last moment of calm before the storm.
Euro-dollar implied vols, a gauge of how strong price swings
will be, blipped higher on Thursday. The move was prompted by
worries over Ukraine and the security of the European gas
supplies that run through it from Russia, combined with the
prospect of action on interest rates by the European Central
Bank next week to spur the euro zone economy.
That last event may be more significant. If investors are to
differentiate more strongly between currencies in the developed
world, they will need to see some more substantial variation in
interest rates, which have been around rock bottom in Europe,
Japan and the United States since late 2008.
Many analysts have argued that the Federal Reserve's reining
in stimulus this year, while the ECB heads in the opposite
direction, may mark that change.
But for now the only gaping divide is between how much
volatility has risen on currencies like the Turkish lira and
Chinese yuan and how little for the euro or dollar.